TY - JOUR
AU - Bradford,David F.
AU - Max,Derrick A.
TI - Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance
JF - National Bureau of Economic Research Working Paper Series
VL - No. 5514
PY - 1996
Y2 - March 1996
DO - 10.3386/w5514
UR - http://www.nber.org/papers/w5514
L1 - http://www.nber.org/papers/w5514.pdf
N1 - Author contact info:
David F. Bradford
E-Mail: N/A user is deceased
Derrick Max
E-Mail: dmax@awrs.org
M1 - published as David F. Bradford, Derrick A. Max. "Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance," in James M. Poterba, editor, "Tax Policy and the Economy, Volume 11" MIT Press (1997)
AB - Since a typical regulatory mandate can be equated in its economic effect to a combination of an expenditure program and a tax program, observers have often suggested that it would serve consistent public policy to bring regulatory decisions into the same budgetary framework. This paper concerns an important example of a regulatory program that would mimic deficit financing in effecting a transfer of fiscal burdens toward younger and future generations, the mandated purchase of (or provision by employers of) health care insurance under a system of community rating, under which the same price is charged for health insurance for all comers, regardless of age, sex, or health condition. Such a shift would result in redistributions of burdens across birth cohorts, in this case from existing, especially middle-aged birth cohorts toward future generations. Using data from a variety of sources we conclude the effect would be substantial. For our central-case assumptions about discount, health care cost, and productivity growth rates, and about the locus of responsibility for paying health care bills, a shift to community rating is estimated to generate gains for people over age 30 in 1994, $16,700 per person aged 50 for example, at the cost to younger cohorts. Those born in 1994 would acquire an extra payment obligation with a discounted value of $7,100 each. The burden passed along to future generations can be described by a $9,300 per capita tax at birth (growing with productivity). The analysis makes clear that the regula- tory policy shift, with no direct budgetary implications, would have an intergenerational transfer effect comparable to what would be considered a major change in on-budget tax or transfer programs.
ER -